According to the Financial Industry Regulatory Authority (FINRA), only one-third of adults could answer at least four of five financial literacy questions on fundamental economic concepts including mortgages, interest rates, inflation and risk. Additionally, about 40% of Americans turn to family, friends, or coworkers when they have a question about finances. Globally, the nation ranked 14th in the world for basic financial skills as of 2014, with only 57% of adults considered financially literate, according to Standard & Poor’s Global Financial Literacy Survey. And despite the fact that we make decisions about money every hour of every day, many states don’t require students to take a course on personal finance.
Without knowledge about important financial literacy topics including introductory economics, interest rates, savings, loans, investments, and long-term financial planning, we are limiting access to economic opportunity and mobility. Looking at these statistics from an individual’s perspective, lack of financial literacy can have a devastating impact on adults’ credit scores, which influences not only their ability to receive loans and credit cards, but also impacts their ability to rent or purchase a home.
Financial literacy education, beginning at a young age, is essential in order to improve Americans’ standard of living and reduce income inequality among the population. When students complete their education, they enter the workforce with very little financial knowledge such as the responsible use of credit cards, student loans, mortgages, and other types of consumer debt. These skills that young adults need in order to succeed in life are often excluded from the classroom experience. Many schools don’t have lesson plans or minimum financial literacy standards, sending graduates into a society overflowing with opportunities to obtain debt.
The cycle of debt begins at a young age for most Americans, inciting and feeding their reliance on student loans and credit cards. One would think that after high school, colleges would begin to assist students with their finances. But rather than teaching the skills that could prevent bad money habits and debt in the future, college campuses welcome credit card companies onto their grounds who are more than eager to sign an 18-year-old to a high-interest account, which is detrimental for the young adult’s long-term financial well-being.
Returning to a holistic view, a country’s lack of overall financial literacy contributes to bigger social issues, including wealth, racial and gender inequality. These are issues we have faced for years, however, financial literacy has never been viewed as a solution. To combat these issues, we need to provide access to financial education to communities in which it has been excluded. Places that have been especially impacted by COVID-19 and the events of this past year should also incorporate this. Making financial literacy a bipartisan policy priority will help us bridge this gap.
It is clear that financial literacy is an extremely important issue that we as a country need to address in all sectors of our society, beginning in school. This form of education has a vital role to play in helping Americans navigate these uncharted waters. Looking to the future, we can advance this worthy cause at a minimum by making financial education a high school graduation requirement in all states. Hopeful in the years to come, we will truly understand the need for financial literacy and allow every American to acquire the basic financial skills, knowledge and confidence to fully participate in our complex economy.
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